Seven Things You Should Know

about China to Understand the

Trade War

Wendong Zhang

Assistant Professor of Economics and Extension

Economist

wdzhang@iastate.edu, 515-294-2536

ASFMRA Iowa Chapter Annual Conference

Ames, Iowa, February 7, 2019

A Quick Introduction:

Dr. Wendong Zhang – Grown up in a rural county in NE China

– Attended college in Shanghai and Hong Kong

– Ph.D. in Ag Econ in 2015 from Ohio State

– 2012 summer intern at USDA-ERS on farm economy

and farmland values

– Research and extension interests:

land value/ownership www.card.iastate.edu/farmland/

agriculture and the environment

China Ag center www.card.iastate.edu/china

~1 billion viewers

#1: Ag is comparative advantage for US,

not for China

Chinese land is owned by collectives

(Contract Right Certificate)

With at least one 30-year renewal

China’s New Rural Land Transfer Reform 2016: 77 million acres (35% of cropland) transferred; 2007: 5% Among them: 30% to co-ops or corps; 80% non-grain production

Mainland China vs. US

China Corn Yield

China Soybean Yield

2015 Soybean Yield US: 48 Bu/acre Iowa: 56 Bu/acre China: 26 Bu/acre

#2:

Why China

decided to

talk?

China

suffers

greater

economic

Loss overall,

but also for

US ag states

like Iowa

#3: Trade disruptions give China strategic

incentives to further diversify away from U.S.,

potentially benefitting our competitors

Commodity (2016 value

of China ag imports) USA Brazil Europe Australia

Argentina

or Uruguay

Soybean ($34.4 Bil.)

(China increased

production by 9% in

2018)

38% 47% A-10%

Pork ($2.32 Bil.) 13% 50% Canada: 11%

Ethanol ($0.38 Bil.) 70% 11% Pakistan 15%

Beef ($2.42 Bil.) 0% 22% 28% U-21%

Poultry ($1.11 Bil.) 79% A-9%

Corn ($0.87 Bil.) 10% Ukraine: 79%

China’s Ag Import Sources

China can produces 97% of its pork, but only 15% of its soybean demand domestically China provided about US$200/acre subsidy to increase soy production (up 9% 2018)

Soy

Stats

Worrying

US Loses Market Share as China

Increases Meat Imports from the World

Source: Choices 2017 Q2 Issue

China’s

Belt and

Road

Initiative

China cannot produce enough ethanol

domestically to fulfill the 2020 E10 ethanol

mandate

4th largest producer – 1 Bil gal.

- After US, Brazil and EU

- Corn ethanol 64%

- Also uses cassava, sorghum, corn stover

- Imported 225 mil. gal, mainly from U.S.

- Tariff rose from 5% to 30%

China consumes 40 bil. gal gasoline; 1 bil. gal ethanol in

2016

China’s Ethanol Trial

Structural impacts of trade war Chinese Ag Policy Presents Future Demand that could be filled

by our competitors

China enters

“New Era”

• Chinese Dream

• Belt and Road

Initiative

• Xi Jinping 2030?

• COE of China

#4: Arguably strategic misjudgments early on by both sides,

exposing lack of mutual understandings and mistrust

#5: China is a Country of Rapid Change

High Speed Rail

Chinese People Are

Getting Richer, and

will need more

protein and better

environment

Greenhouse – plastic film - Shandong Province

My hometown: Shenxian,

Shandong Province

#6: Chinese economy and U.S.-

China Relations at Inflection Points

U.S.-China Relations at Critical

Inflection Point

#7: Chinese consumers, producers,

and gov’t increasingly like U.S.

2018: 1 Billion Users 2013: 195 Mil. Users

Be Careful with your PR/Marketing Plan

and tweets

Key Messages (on Ag Decision Maker):

Understand Contemporary China!

1. Ag is not China’s comparative advantage

2. China suffers more economically, but retaliate on ag states like Iowa

3. Trade war makes China further diversify away from US

4. Trade war exposes early strategic misjudgments and growing mistrust

5. China is a country of rapid change

6. Chinese economy and relations with US at inflection points

7. Chinese producers and consumers increasingly think and act like Americans

($5 each print copy!)

https://store.extension.iastate.edu/product/6492

• 82% of Iowa land is debt-free

• 60% of land owned by owners 65+

years old, one-third of land owned by

75+ years old, 13% of land owned by

women landowner 80+ years old

• Ownership continues to shift from sole

ownership to trusts and corporations

• 53% of Iowa land rented out – mainly

cash rent

• 34% of Iowa land owned by landlords

with no farming experience, 23% of land

owned by retired farmers who do not

currently farm

• 29% of Iowa land owned primarily for

family/sentimental reasons

2018 IOWA LAND VALUE

$7,264

Nov 2018 down 0.8%

down $62

Double Downward Pressure

Land Value = income / interest rate

Thank You!

Wendong Zhang Assistant Professor and Extension Economist

478C Heady Hall, Iowa State University

515-294-2536

wdzhang@iastate.edu

www.card.iastate.edu/china

www.card.iastate.edu/farmland